The cost of protecting against a Treasury selloff has surged as 30-year yields hit levels not seen since 2007, signaling deep unease about the Fed’s inflation strategy. The key 1-month 25-delta skew, which tracks the relative cost of options that profit from rising yields versus those that profit from falling yields, has reached its highest level in roughly five months. Hedging premiums on US Treasuries have climbed to their highest point since March, with traders bracing for further upside room in long-term yields. This surge directly impacts mortgage rates, corporate borrowing costs, pension fund calculations, and stock valuations. A self-reinforcing dynamic is emerging: as hedging costs rise, some investors are outright reducing their bond exposure, which in turn pushes yields higher and validates the very concerns driving hedging demand.
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